AM Best: D&O AY results may soon indicate premiums “fell too far, too quickly”

By Michael Loney

March 3 - (The Insurer) - US D&O insurers will benefit from an expected moderation of price decreases, but the market’s accident year results in the near term may show that premiums fell too far and too quickly, AM Best has said.

In a new commentary, AM Best said that renewal premium has continued to fall in 2025 for certain types of accounts, continuing a trend which began in 2022.

Monoline D&O liability premium has declined for more than two years compared to the same quarter of the prior year, with seven of the quarters having double-digit declines.

AM Best said decreases are particularly impacting companies involved in IPOs, special purpose acquisition companies and de-SPAC companies.

“For many companies, however, the significant renewal price decreases will likely begin to moderate, which AM Best believes could benefit the market, given the potential headwinds D&O insurers will face. Accident year results over the near term may indicate that premiums fell too far, too quickly,” the commentary said.

Improved underwriting performance and tighter risk selection have led to more favourable direct loss ratios in the past few years, despite the falling premium levels.

But the rating agency noted that the softer pricing could hurt D&O insurers' near-term financial performance because the premium base to support future claims activity has “diminished notably even as risks are emerging or expanding”.

AM Best warned that competitive pressure from new market entrants in the past few years “underlies the concerns many participants have about the market”.

The rating agency also cited the rise in securities class action lawsuits filed in 2023 and 2024; the shifting focus of the plaintiffs' bar to companies with smaller market capitalisation; and concerns about AI, including the potential for lawsuits stemming from so-called "AI-washing".